Thursday, May 19, 2016

Testing and Homologation: ‘Make or Break’ for Firms

Recent news reports suggest that certain Indian cars have failed to comply with the standards of crash test conducted by Global Car National Car Assessment Programme (GNCAP). On top of that, there have been news reports stating that Japanese car manufacturer, Suzuki, found discrepancies in its fuel and emissions testing but denied any cheating. Suzuki said that its testing method did not comply with Japanese regulations but the results are not materially impacted. About a month ago, Mitsubishi of Japan admitted that it had been manipulating fuel economy record of its automobile models for several years, a news which caused a serious erosion of its market capitalization. Only a few days ago, Nissan of Nissan-Renault alliance announced a 34 percent strategic stake in Mitsubishi to stabilize the company. These follow the infamous Volkswagen emission scandal that came to light in February 2015 involving tampering with of software code of engines fitted on millions of cars to show the vehicles to be in compliance of regulatory standards. A few other manufacturers are reportedly involved in such errors, discrepancies or manipulations.

These high visibility cover-ups pertaining to product quality come on top of several recalls that have been prominent in the automobile industry, covering both vehicle manufacturers (GM, Toyota, Honda etc.,) and component makers (Firestone, Takata etc.,). Nor is this a new trend. A review of available literature reveals that automotive manufacturers including the Big 3 of USA and other European makers were beset by problems of quality and non-compliance since the 1940s. India had its own incident when Standard Motor had to close shop in late 1980s as a result of alleged violation of fuel efficiency norms and concessional customs duties. Most of the issues pertain to fuel economy and safety. Flouting of governmental regulations is by no means confined only to automobile industry. Nestle has been in the eye of a perfect storm in India in 2015 because of alleged non-compliance of its lead product, Maggie, with label claim. These incidents which make or mar not merely reputation but even the very existence of a company bring out the importance of testing and homologation in industries.

Testing and homologation

Testing is the process of evaluating a product, system or their components with the intent to find out whether they satisfy the prescribed specifications or not. Testing is an integral part of an overall quality system which comprises a series of policies and procedures to identify compliance to specifications, identify gaps and potentially suggest measures to remediate and improve. Testing is just not an internal commercialization requirement for a company. It is required for homologation, usually of an end-product. Homologation is the official confirmation and approval by the regulatory authorities of a country that the product meets the prescribed regulations and laws besides the company’s own specifications and claims. Every nation tends to have its regulatory agencies, rules and procedures and testing agencies. A manufacturer based in India and marketing in India must necessarily meet Indian regulations. The manufacturer must also meet testing and regulatory protocols of all the nations to which its products are exported.

In addition to the above, in case technology is imported, the standards of the country supplying technology need to be followed. In certain cases, certain desirable global standards need to be met voluntarily for establishing product and brand equity. In today’s globalized and networked production system, fine-tuning design and manufacturing to meet the requirements of multiple nations is a critical requirement. The requirements of testing and homologation vary across industries. They are most complex and long drawn in the pharmaceutical industry relative to any other industry. Regulators in pharmaceuticals, especially of US, EU and Japan, focus on development and manufacturing controls through physical inspections as much as product approvals based on exhibit batches and dossier reviews. In other industries product certifications are all that are required. That said, given the critical importance of testing and homologation, and emergence of testing and regulatory agencies in various countries, companies must evolve new approaches to the domain. Some suggestions are made below.

Six principles for effectiveness in testing and homologation

In most companies, regulatory affairs, new product testing and homologation are parts of R&D setup, mainly because of the developmental nature of these activities, and the impact these three departments have on specification and product development, and vice versa. That said, there should be strong interface between mainstream functions such as manufacturing, sales and service with these three different departments to ensure that results are interpreted in terms of actual site manufacturing and field usage conditions. This collaboration needs to be more than just baton passing but must be more in the nature of collaborative hand-holding, while challenging the proceedings and providing solutions, based on every perspective. Six principles for assuring effectiveness and integrity in testing and homologation are discussed below.

Developmental quality assurance

While quality is generally considered paramount in companies, quality is not fully understood and executed well in an R&D context. This paradox arises from the fact that most of the R&D work is experimental and developmental, and not standardised and repetitive, in nature. The paradox can be resolved through developmental quality assurance (DQA) which understands the specific uniqueness of R&D but imposes the rigour of quality on development and testing. To ensure that testing and homologation absorbs the full rigour of mainstream quality function, DQA professionals must be from mainstream quality function but with an exposure to uniqueness of R&D. The focus needs to be on calibration of equipment, prescription of standard testing procedures, cross-calibration of equipment, processes and conditions encountered internal simulators, external simulators and actual running conditions.

Concurrent quality management

The developments with the automakers indicate the need for concurrent quality management as a concept that is as important as concurrent engineering. Just as quality cannot be inspected but needs to be produced, it also has to be an integral part of design to delivery process, from specification setting to homologation. This requires that the focus of concurrent engineering must change from current ‘first to market’ to ‘right and first to market’. Most designs involve incremental changes, with an eye on performance improvement or cost reduction. Some of the best practices of change management such as justifying a change and making an exception report when it fails to meet up to the expectations would help in ensuring concurrent quality management.

Global product development

Many of homologation issues are both a corollary and a fallout of globalization imperatives. Globalization enables customization of products to meet different markets but it also carries certain risks when cross-platforms are used across countries. An evolved global product development system which designs products for the minimal and maximal conditions of testing and performance, globally relevant, ensures that such products are backed by globally sustainable product platforms. These could relate to meeting more stringent crash tests, using less evolved fuels, more punishing road conditions, and so on. Global product development will also require a very strong global regulatory department which is well-versed in the operating conditions, and homologation requirements of different countries.

Software as hard-stop

Today’s products, especially the automotive products, incorporate more software than at any time. This trend is only likely to increase in future. As the examples quoted in the early part of this post demonstrate, software is one aid for manipulation too. It is important to develop not only bug-free and hack-proof software to ensure safety and privacy of automobiles and their users but also make it traceable and manipulation-proof. CXOs in charge of R&D and product development must integrate software development and error-proofing, including artificial intelligence, sensor technologies and robotics as part of R&D tool kit.

Quality as board audit function

Importantly, there is a need to make quality as an important responsibility of the functioning of the board of directors of a company. All boards today have audit committees to review finances and financial governance as also monitor internal controls in a company. Keeping mala fide intentions aside, financial outcomes are nothing but a resultant of operational integrity. Quality is the sentinel of operational integrity. The link between quality and integrity is thus evident. It is, therefore, important that the boards take upon themselves review of quality as an essential board responsibility. Product testing and homologation processes in global diversification strategies must logically merit attention in quality-centric board functioning.  

Organizational positioning

The above discussion brings out the importance of testing and homologation in making or breaking the reputation of a company. As Volkswagen episode demonstrates, slippages in this vital domain can put paid to global leadership ambitions of a company. And, Mitsubishi episode demonstrates that the very survival and ownership of a company could be at stake. There is every reason, therefore, to bring testing and homologation, from the current side play in R&D departments to the forefront of cross-functional commercialization of new products.

This requires that testing and homologation is treated as a high technology endeavour and not as a tail end activity of R&D. This also requires that this function is positioned with the brightest technical talent which is also exposed to requirements of different countries, and is taken up as a key delivery by the chief technology officer of a company. Integrity and competence in testing and homologation is akin to the role of safety in operations. Its effective presence is the greatest insurance for success and sustainability of both performance and reputation of companies.

Posted by Dr CB Rao on May 19, 2016


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